A collection of observations, news and resources on the changing nature of innovation, technology, leadership, and other subjects.

February 11, 2013

Managing Complex, Disruptive Innovations - Some Lessons Learned

Over the past twenty years I have been involved in a number of initiatives dealing with disruptive innovations. One of the major challenges in managing disruptive innovations is that even if you are sure that change is inevitable and you must therefore embrace the new ideas and technologies, you really don’t know what lies ahead. You don’t really know how quickly the new innovations will be adopted in the marketplace. You cannot answer lots of the questions people will have, both inside and outside the organization.

Sustaining innovations are different, because you are essentially improving existing products and services while continuing to sell to and support a similar client base. But, with disruptive innovations, the new offerings you will be developing are likely to be quite different from what you’ve done in the past. Since one of the reasons for embracing a disruptive technology might be to help expand your markets, it’s quite possible that you will also be reaching out to different kinds of customers through different kinds of sales and support channels.

Beyond a certain point, waiting is not a viable option. A company that is already consumed with managing its existing operations, may see the new innovation as more of a distraction than an opportunity. But, this is generally a mistake, sometimes a very costly one. Once the buzz is in the air, universities and research communities, as well as entrepreneurs and VCs are likely well on their way in developing the new technologies and figuring out their marketplace implications.

So, whenit’sbecome clear that major changes are inevitable, whether you like it or not, it is important to get on the learning curve, and seriously consider your strategy options. How will your industry change over time? What are the implications for your company, and what should you do about it? How quickly should you move? The answers to these questions and the ensuing actions you take are likely to be critical to the future of the business.

Let me share some of my experiences in managing disruptive innovations, in particular, the development of IBM’s Internet and e-business strategy in the mid-late 1990s. Given the central role that the Internet continues to play in our increasingly digital economy, I find that many of the lessons I learned back then are still relevant today.

IBM’s Internet Division was launched in December of 1995 with me as general manager. At the time, a lot was happening around the Internet, but it was not clear where things were heading, and in particular what the implications would be to the world of business. The dot-com era was famous for its many innovations, but also for its hype. A lot of people were saying that in the Internet-based new economy, startups had an inherent advantage over existing companies, whose legacy assets, including their IT infrastructure, were no longer relevant, would slow them down and make it hard for them to compete.

Our main job was to figure out the business value around the Internet, what we should advise our clients to do and what new products and service needed to get developed. Equally important, we needed to come up with an Internet business model that made sense for IBM and was financially sound. Let me briefly discuss some of the key lessons learned.

Learn in the Marketplace

e-business was not about any one product or service. It was about how to best leverage a new disruptive technology, the Internet, for business value. While several new products were eventually developed, e-business was not a product-oriented initiative. We were trying to develop a new market, and as such, the strategy had to come from the marketplace, not the R&D labs.

We carefully analyzed what was going on in the marketplace and worked closely with many clients around the world. As we did so, it started to become clear that the Internet was going to have a profound impact on business.

The universal reach and connectivity of the Internet were enabling access to information and transactions of all sorts for anyone with a browser and an Internet connection. Any business, by integrating its existing databases and applications with a web front end, could now reach its customers, employees, suppliers and partners at any time of the day or night, no matter where they were. Businesses were thus able to engage in their core transactional activities in a much more productive and efficient way. And they could start very simply, initially just web-enabling specific applications and databases.

Leverage all your assets

Our clients told us that their business operations were totally dependent on the IT infrastructures that they had built up over many years at great effort and expense. They saw no possible way to replace their infrastructure, as many were advising them to do, and the expenses involved would be prohibitive. They were happy to embrace the new, innovative capabilities of the Web, but it all had to be done in an evolutionary way while continuing their present operations and leveraging their existing IT infrastructures.

There was no question that new, innovative business models were being created around the Internet. As the Internet frenzy started to pick up intensity, people were experimenting with many new models - some of which turned out to be brilliant, and some rather silly. Part of the buzz in the air was that in the Internet-based new economy, born-on-the-Web startups had an inherent advantage over existing,"brick-and-mortar" businesses. Because of their grounding in the physical world, it was thought that existing companies could not possibly compete in this fast-moving digital space and were therefore headed for extinction.

We succinctly described our e-business strategy as Web + IT. Every business, we were convinced, would benefit from embracing the universal reach and connectivity of the Internet, not just startups. But, unlike the prevailing hype, we also believed that the brand reputation, installed customer base and IT infrastructures that companies had built over the years would be even more valuable assets when combined with the new Web capabilities. All companies could benefit, - whether large or small, new or mature.

Our position was not very popular at the height of the dot-com hype, but once the bubble burst a few years later, it was clear that we had developed the right strategy and had given our customer the right advice.

Change in a series of evolutionary steps

We were also convinced that the Internet was the beginning of a profound business and societal revolution with the potential to alter the shape of businesses, industries and economies over time. But given the complexity of the changes involved, they would likely take place as a series of incremental, evolutionary steps, not as a rip-and-replace transformation. And the way to discover what those steps were was to work closely with clients in the marketplace to discover the key e-business killer apps, that is, which Internet-based applications were relatively easy to implement but turned out to be unexpectedly useful.

For example, customer self-service turned out to be the killer-app of the early days of the Web. These kinds of applications were relatively simple to implement, yet so useful that they helped convince companies around the world that the Web was something real that they had to pay attention to or else.

It was quite revolutionary that customers could now simply use the Web for many ordinary activities that previously required a trip to a store or office, or at least a phone call during office hours. All of a sudden you could track the status of your packages, access the latest sports results, conduct research on different cars you are considering buying, check the weather of any city in the world or buy a book with nothing more than a browser and an Internet connection.

And when done well, everybody benefitted. Companies could provide superior customer service at lower costs, and their clients were happy that they could easily get whatever information they wanted any time of day or night. Many more such evolutionary, ordinary and highly useful innovations followed. But, over the years they added up to a truly massive transformation.

When dealing with other more recent complex initiatives, - e.g., cloud computing, social business, digital money and payments, - I find myself reflecting back on my experiences with the e-business strategy. There is no one answer on how to best manage disruptive innovations. But, working with clients in the marketplace, leveraging your legacy assets, and making progress through a series of evolutionary steps continue to be important lessons to keep in mind.